Tribunal adjusts quantum addition, reduces to Rs. 70,75,882.36. Penalty appeal dismissed; penalty to be recalculated.

M/s Gayathri Exports Versus The Asst. Commissioner of Income-tax, Circle-2 (1), Mangalore

M/s Gayathri Exports Versus The Asst. Commissioner of Income-tax, Circle-2 (1), Mangalore - TMI Issues Involved:
1. Quantum addition in assessment.
2. Levy of penalty under section 271(1)(c) of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Quantum Addition in Assessment:
- Facts: The assessee, engaged in processing and trading cashew kernels, declared an income of Rs. 1,82,62,775/-. The AO noted discrepancies in the weight of cashew kernels produced and sold, leading to a re-evaluation of stock and production.
- AO's Findings: The AO found inconsistencies in the weight of tins used for local sales versus exports and sales to armed forces. The AO reworked the stock and production figures, leading to a closing stock value of Rs. 4,38,51,174/- against the assessee's declared value of Rs. 3,35,27,450/-, resulting in an addition of Rs. 1,03,23,724/-.
- Interest Disallowance: The AO also disallowed Rs. 2,44,413/- of interest, as the assessee had given advances to certain individuals without a clear nexus to interest-bearing funds.
- CIT(A) Decision: The CIT(A) upheld the AO's findings, noting that the assessee had admitted to the discrepancies.
- Tribunal's Decision: The Tribunal did not admit the additional evidence submitted by the assessee, which was a month-wise stock movement. On merits, the Tribunal found that the AO's reworking was justified except for the opening stock, which could have been overestimated by 15,672.64 Kgs. This led to a revised addition of Rs. 70,75,882.36. The Tribunal also remitted the interest disallowance issue back to the AO for fresh consideration, noting that the assessee had sufficient own funds.

2. Levy of Penalty Under Section 271(1)(c):
- Facts: The AO issued a notice for penalty under section 271(1)(c) due to discrepancies in closing stock. The assessee's explanation of an arithmetical error was not accepted, and a penalty was levied.
- CIT(A) Decision: The CIT(A) upheld the penalty, noting that the suppression of stock was admitted and demonstrated.
- Tribunal's Decision: The Tribunal found that the assessee had not maintained a standard stock register and had manipulated the weight per tin to undervalue the closing stock. The Tribunal upheld the penalty but directed the AO to rework the penalty amount based on the revised addition of Rs. 70,75,882.36.

Conclusion:
- The appeal regarding quantum addition was partly allowed, reducing the addition to Rs. 70,75,882.36.
- The appeal against the penalty was dismissed, but the penalty amount was to be reworked based on the revised addition.

Order Pronounced: The judgment was pronounced in the open Court on 12-09-2014.